Finance: Research, Policy and Anecdotes

Brexit - habemus pactum?

So, here we are –habemus pactum – the European Union and the government Prime Minister of the UK have agreed on a withdrawal treaty and political declaration for the future relationship. A customs union for the UK with the EU as backstop until a new trading relationship can be negotiated that prevents the need for a hard border in Ireland with the UK respecting certain minimum standards of labour rights, environment etc.; frictions between Northern Ireland and Great Britain to allow for smooth trade across the Irish land border. And a transition period until the end of 2020, but which can be expanded until the end of 2022, during which the UK is effectively a EU member without any say and any leverage for the follow-up negotiations.  Never mind that large parts of the cabinet do not seem to agree with the Prime Minister and there is currently no majority in the House of Commons nor in the population for this agreement; as with any good compromise, everyone seems to hate it and for a good reason – economically it is worse than EU membership but better than an even harder Brexit, but politically it is worse than anything else, both EU membership and a harder Brexit, as the UK has to comply with rules it won’t set. As Ian Dunt summarises it: May’s Brexit deal is a humiliation for Britain. But then again, every serious economist in the UK has predicted that there is no such thing as a good Brexit!  So, we should not be surprised. There was simply no way to make a success out of the Brexit process.  

 

This withdrawal agreement is probably the best outcome for the UK, given the contradictory red lines the Prime Minister established early on and which I summarised as Brexit trilemma. Ultimately, she decided to respect the need for a soft border in Ireland, accepted some divergence along the Irish Sea (between Great Britain and Northern Ireland) and all but gave up on independent trade policy, accepting a bare-bone customs union with the EU until further notice (i.e., as long as the backstop to avoid a hard border in Ireland is needed).  The problem is not so much the agreement, but the expectations she raised during the past two years in the form of red lines and which she ultimately had to ignore. Which comes back to her original sin – setting out expectations for Brexit and triggering Article 50 without a plan whatsoever and without an agreement within her government, her party, not to mention the country on what Brexit should look like.

 

The one advantage of Theresa May is that there is no obvious alternative plan to the Withdrawal Agreement that is acceptable to a majority in her party (though might be in the House of Commons). Most if not all of the hard Brexiters continue to be absolutely clueless and delusional.  Never mind that all of their predictions about the EU-UK negotiations have been disproved (lest we forget, see here), their ignorance if not outright lies have dominated the debate in the UK again and again over the past 2.5 years. Latest addition to this list is the written opinion by David Davis that a withdrawal agreement is not needed as the trade relationship between the UK and the EU could be negotiated during the transition period – never mind that this transition period is the result of a withdrawal agreement! Note that this is not a slip of tongue but was provided in written form.  In addition to this comes the “Greek fallacy” that if only you get strong support at home (which Theresa May never had), this does not (and should not) trump the interests of the other 27 countries of the EU.

 

There are a lot of voices in the UK that demand to “just get on with Brexit”, even if it implies Brexit without a deal. This is also reflected in Boris Johnson’s statement of “Fuck Business”.  This reflects both an ignorance on the side of people with such opinions but – more importantly - a failure of the political class (and maybe us social scientists!) to better explain that the “omelette of deep economic integration” cannot be unscrambled easily and without costs. Obviously, these statements are in line with Michael Gove’s statement during the campaign that the country had enough of experts. And these feelings are fuelled by mass media that make Brexit indeed look like a walk in the park. It seems that in spite of all the mistakes the Prime Minister and her political allies have made over the past 2.5 years, there is still enough common sense left in them to realise that this assessment does not quite match reality,.

 

It has become clear over the past 2.5 years that for the Prime Minister Brexit seems to be all about restricting freedom of movement – the UK never made the difference between immigration (people moving from outside the EU into the UK) and EU citizens exercising their rights to live and work in the UK (and vice versa) under Single Market rules. This has become clear since David Cameron came up with the nonsensical idea of reducing net immigration (including EU citizens) to below 100,000 per year and has been reinforced by Theresa May last week when she accused EU citizens like me of jumping the queue (paraphrasing a reaction on twitter: which queue – the one to help return tax revenues towards a more stable basis after the crisis  or the one for poor public services?). The government and especially the Prime Minister have actively fuelled an atmosphere of xenophobia in this country after the referendum, which made a soft Brexit (known as Norway model) all but impossible.  In line with right-wing populist parties on the Continent and the Republicans under Mr. Trump in the US, the Tories have developed from a common-sense, business oriented party into an extreme right-wing if not fascistoid party – well, who needs the UKIP anymore if their ideology has been taken on by the governing party of this country?

 

Unfortunately, this will not be the end of it.  I sometimes get asked by friends of the continent whether I am glad that all of this will be over by 29 March. Well, no, it will not be over, even in the “best case” scenario of the Withdrawal Agreement being accepted by a majority in the House of Commons.  Soon after the Brexit, the next round of negotiations will start – on two levels as up to now: between the EU and the UK on the future trade deal and – as if not even more important – within the UK government and the UK political class on the future relationship between the UK and EU. This debate will put its stamp on politics in the UK for the next decade if not generation. If the Withdrawal Agreement gets rejected in the House of Commons (even in a second vote), there are chaotic weeks and months ahead for Westminster and all odds are off on what could happen.  In this case, you ain’t seen nothing yet!